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A Banking Crisis Looms

A Banking Crisis Looms

My columns have turned rather apocalyptic of late, but for a valid reason. Just this week, we got confirmation that our financial system is, again, on the brink of collapse, when the Bank of England (BOE) was forced to enact, de facto, a bailout of the pension funds of the United Kingdom.

On Sept. 28, around noon, the Bank of England stepped (back) into the gilt markets and started buying government bonds with longer maturities to stop the collapse in their value, which could have caused the financial system to become unhinged. Pension funds were faced with major margin calls, which threatened to cause a rapidly cascading run on their liabilities, as trust in their liquidity and solvency would have become questioned by a widening circle of investors and customers.

Effectively, the BOE stepped in to limit the vicious circle of margin calls faced by pension funds because of the crashing values of the gilts.

Without the BOE intervention, mass insolvencies of pension funds—and thus most likely other financial institutions—could have commenced that afternoon. It’s obvious that if one of the major financial hubs of the world, the City of London, would face a financial panic, it would spread to the rest of the world in an instant.

It looks as though the global financial system was pulled from the brink of collapse, once again, by central bankers. However, this was only a temporary fix.

It’s now clear that an outright financial collapse threatens all Western economies, because if pension funds, often considered very dull investors because of their risk-averse investing profile, face a threat to their insolvency, it can happen to any other financial institution…

…click on the above link to read the rest of the article…

Quantitative easing: how the world got hooked on magicked-up money

Going cold turkey would finish off a dysfunctional global financial system that’s now hopelessly addicted to emergency infusions. The only solution is surgery on the system itself

The world economy is a mess. The system, notionally governed by the invisible hand of the market, is no longer governed in any meaningful way: private excess puffs up bubbles that government indulgence ensures can never burst. We seem condemned to volatile commodity prices, wild capital flows, worsening imbalances in trade, taxation and income, and—before long—the next sovereign debt crisis. And then there’s inequality. During lockdown, the total wealth of billionaires rose by $5 trillion to $13 trillion in 12 months, the most dramatic surge ever registered on the annual Forbes billionaire list.

Where do such riches come from? Compared to before the pandemic, there’s less real economic activity: we are collectively poorer. And yet within a year of the great panic of March 2020, many asset prices were surging. Wall Street and the City of London are again awash with liquidity—and in a speculative mood. One vogue is for something called SPACs, or “special purpose acquisition companies.” That sounds so vague as to bring to mind the South Sea Bubble companies of 1720, whose pitch is remembered as “carrying on an undertaking of great advantage but nobody to know what it is.”

How is this mismatch between financial markets and underlying reality possible? Because just like in the aftermath of the Great Recession, the civil servants in our central banks spotted the dreadful potential of unchecked panic, and rode to the rescue of private speculators by flushing the system with made-up money through a process we’ve come to know as quantitative easing.

…click on the above link to read the rest of the article…

Humpty Dumpty System is Irreparable

HUMPTY DUMPTY SYSTEM IS IRREPARABLE

What does it take to break the global financial system? Well, we obviously know what it takes since the system is already broken. Broken by debts, broken by deficits, broken by a fractured financial system, and broken by false markets as well as fake money. 

So just like Humpty Dumpty, the system has already had a big fall. But the world still believes that this is all a fairytale with a happy ending. No one wants to recognise that Humpty is totally broken and irreparable. 

NO ONE CAN PUT HUMPTY TOGETHER AGAIN

All the king’s men, in the shape of the Fed and other central banks plus governments, are desperately trying to put Humpty back together again. The problem is that the glue just won’t stick. Already back in 2007-9 and thereafter, massive amounts of glue were applied in the form of unlimited money printing and credit creation. The problem was that a remedy in big quantities serves no purpose if the quality is poor. 

Fortunately for the king’s men, nobody realised that they worked with inferior material. Equity markets only care about quantity and there certainly was enough glue or printed money. So it has been all about quantity or printing a lot of worthless money. Why else would it be called QE or quantitative easing? 

HOCUS POCUS ACTIONS

QE is one of these Hocus Pocus words, invented by TPTB (the powers that be), which sounds important and mysterious. But for us normal mortals it should be called MP or money printing. That’s all it is, but since money printing sounds quite crude, the Fed and Co think they can get away with a posh word which nobody understands. All QE stands for is printing money in great quantities. 

…click on the above link to read the rest of the article…

PRECIOUS METALS INVESTOR ALERT: Prices Are Heading Into An Entirely New Market

PRECIOUS METALS INVESTOR ALERT: Prices Are Heading Into An Entirely New Market

The Global Financial System is now under severe stress.  While there have been many factors leading to up to this point, the situation that is unfolding in China and abroad seems to be speeding up the process.  Yesterday, the market got a small WHIFF or WOKE up a TAD in regards to a global contagion and soon to be the rapid contraction of the JIT – Just In Time Inventory Supply Chain System.

Even though the Dow Jones Index lost 1,031 points on Monday and another 400+ points so far today, this is mere peanuts when we take into account what is coming in the following weeks and months ahead. Because China accounts for 21% of Global GDP and it supplies a lot of goods, parts, and consumables around the planet, a severe contraction will impact the rest of the world in short order.

But, what if this contagion spreads further to other countries as we see in Iran and Italy??  Then, we are talking about a much more severe systemic problem.  And according to my research these past 3-4 days, it’s much worse than I previously thought.  I don’t plan on doing any updates on this contagion, as many others are more qualified.  However, I will be posting some information as it pertains to the global economy and financial system.

The one thing that I will share is that if you want to wait to prepare for this until some local, state, or regional government comes in and locks down your town, city, or area… then you are behaving UNWISELY.  Of course, the situation may not get that bad, but there is nothing wrong with a little insurance, just in case.

The Precious Metals Will Do Did Exactly What They Were Designed To Do… PROTECT WEALTH

…click on the above link to read the rest of the article…

Past Point of No Return –John Rubino

Past Point of No Return –John Rubino

Financial writer and book author John Rubino sees the world careening toward a debt reset at an increasing pace. Rubino explains, “The coming monetary reset and what that means for gold and what that means for the rest of the global financial system, you don’t need a war to bring that about because we are making enough financial mistakes that will get us there in no time flat now without geopolitical turmoil. If you add a big war in the Middle East into the equation, then anything can happen. A scenario right now that is very, very feasible is we start shooting in the Middle East and Russia and China is on the other side of this in one way or another. They help Iran, and we have our allies helping us, and we start using these next generation weapons that are breathtakingly powerful. Nobody has any idea what’s going to happen when we start throwing these things at each other. . . . Oil spikes to $100 – $150 per barrel, and that tips the already extremely fragile global financial system over the edge. So, we get the ‘Greater Depression’ or the monetary reset or a hyperinflation or whatever we get sooner rather than later. It’s a disaster for everybody when it happens that way.”

Rubino says the monetary masters “tried to fix the financial system but could not do it.” Rubino says, “If you think you are beyond the point of no return financially as an individual, you borrow as much money as you can, and then go bankrupt. . . . Governments in the world are starting to do that now or behaving that way. . . . There is nothing they can do to fix the system. In the U.S., they tried to fix the system and scale back and they found out that is impossible…

…click on the above link to read the rest of the article…

Global Financial System Is A Big Rube Goldberg Machine

Global Financial System Is A Big Rube Goldberg Machine

While pondering the current economy that is becoming more of a conundrum every day, I stumbled upon an analogy I would like to share. The global economy is like a giant “Rube Goldberg” machine. It is a ridiculously complicated contraption built to perform what should normally be a simple task. Rube Goldberg machines often mimic the real world in that they are goal-oriented with many parts coming together to complete a task.

In the real world, things are usually not intentionally designed to be complicated but the reality is that they just are. It is an understatement to say the global financial system is not a well-oiled machine. More often than we would like to admit various systems and parts are thrown or “cobbled together” in a haphazard way to get the job done. We tend to try and explain events in terms of cause and effect but in doing so the bigger picture has a way of getting lost. Often hidden away is the nature of the risk that results from complexity and systems becoming codependent upon others. Bestselling author Nassim Taleb who wrote, “The Black Swan” detailed in his book how when something is highly complicated highly improbable and unpredictable events can and do occur.

Some of this is playing out right now and can be seen in the Fed’s key reversal in policy. In an effort to avoid a crisis the Fed has been forced to deal with a liquidity issue in repo rates since a sudden and dramatic surge began in September. While it is difficult to see the difference between QE and an injection aimed at maintaining liquidity, in this case, several reasons exist to believe this is not QE but something far more disturbing. 

…click on the above link to read the rest of the article…

Paul Singer Warns A 40% Market Crash Is Coming

Paul Singer Warns A 40% Market Crash Is Coming

Earlier today, in a stark reversal from its traditionally cheerful demeanor, a Goldman Sachs strategist warned that  “purely based on elevated equity valuations, as measured by the S&P 500 Shiller P/E, and current growth, according to our US Current Activity Indicator (CAI), the risk of an equity drawdown of more than 10%”, i.e. a sharp market drop, or for lack of a better word, crash, “is the highest since the GFC.”

Well, Goldman wasn’t the only one to see a major market selloff in the coming months.

Speaking at the Aspen Ideas Festival, billionaire investor and Elliott Management founder, Paul Singer, warned that the global economy is heading toward a “significant market downturn” cautioning that “the global financial system is very much toward the risky end of the spectrum.”

While Paul Singer’s traditionally downcast outlook is hardly surprising, as it permeates every investor letter published by the successful investor who has been particularly clear in the past decade that the Fed’s monetary experiment will end terribly, he sees two particular reasons why the economy is approaching a tipping point: “global debt is at an all-time high. Derivatives are at an all-time high and it took all of this monetary easing to get to where we are today and I don’t think central bankers, or policymakers or academics are in any better shape to predict the next downturn and I think we are the high end of the risk spectrum.” 

He then ominously added that “I’m expecting the possibility of a significant market downturn.”

How bad would the crash be? According to the Elliott Management CEO, there will be a market “correction” of 30% to 40% when the downturn hits, although unlike Goldman – which gave a timeline of 12 months in which the next major market will materialize, Singer said he couldn’t predict the timing.

 …click on the above link to read the rest of the article…

We’re Flash Crashing to Hell – Jim Sinclair & Bill Holter

We’re Flash Crashing to Hell – Jim Sinclair & Bill Holter

Financial writer Bill Holter and renowned gold and financial expert Jim Sinclair warned last summer there were big problems coming in the global financial system. Today, Sinclair says, “We destroyed everything. We not only destroyed the financial markets, we destroyed society. I’m going for June of this year. The reset button gets reset after a few days of a flash crash that can’t be stopped. We’re flash crashing to hell, piece by piece by piece, until all of a sudden, the motion of the entity cannot be stopped.”

Holter says, “I think President Trump is going to preside over a bankruptcy. He’s gone through bankruptcies with his own companies and understands the process. That’s what this is. It’s the bankruptcy of the corporation of the United States.”

Sinclair adds, “Much of Trump’s business career is in bankruptcy, and he has used it as an asset quite successfully.”

Holter also points out, “Paul Volker, when he was Chairman of the Fed, was able to raise rates and able to tighten the money supply. He was able to create a deep recession. The reason he was able to do that was the country, corporations, individuals and the federal government itself was not over-leveraged in 1980 to the extent it is today. The over-leverage is everywhere today. If Paul Volker came in today and tried to do what he did back in 1979 and 1980, all you would see for markets and the economy is one big black smoking hole. You would have the entire system come down.”

Sinclair warns, “If Bill and I were standing on a street corner as preachers, our sign would read not ‘the end is near.’ Our sign would read, ‘it ended.’”

 …click on the above link to read the rest of the article…

Dollar Dominant & Dangerous – System Not Stable – Catherine Austin Fitts

Dollar Dominant & Dangerous – System Not Stable – Catherine Austin Fitts

Investment advisor and former Assistant Secretary of Housing, Catherine Austin Fitts, predicts the global financial system “will take some big hits before the end of the year.” Fitts explains, “Right now, economists say the dollar is ‘dangerous and dominant.’ It’s still, if you look at the market shares around the world, it’s still very, very significant portion of total reserves. So, it’s still very important. At the same time, the U.S. dollar hegemony is probably not going to last forever . . . So, I think the long term dollar looks very weak. Short term, it doesn’t look like it’s coming apart anytime soon, as far as I can see. What that means is when you have something that is dangerous and dominant, you have the possibility of extreme volatility events. That’s the new code word for the ‘you know what’ hits the, you know what. Whether it’s different countries exploding economically, or we whether are pressuring people that makes them very uncomfortable, these kinds of fights over shrinking pies are very dangerous because they mean covert wars. They mean overt wars, and the more we steal pies from each other instead of make new pies, the worse the situation gets. That’s what you are seeing. The system is not stable.”

Fitts goes on to say, “The real push are for real assets: real assets reflected in a stock, or real assets reflected by real estate or precious metals.”

There is good reason people are going to real assets. The U.S. government is “missing” $21 trillion between the DOD and HUD. This fact was uncovered by Fitts and economist Dr. Mark Skidmore last year.

…click on the above link to read the rest of the article…

The Global Financial System Is Unraveling, And No, the U.S. Is Not immune

The Global Financial System Is Unraveling, And No, the U.S. Is Not immune

Currencies don’t melt down randomly. This is only the first stage of a complete re-ordering of the global financial system.
Take a look at the Shanghai Stock Market (China) and tell me what you see:
A complete meltdown, right? More specifically, a four-month battle to cling to the key technical support of the 200-week moving average (the red line). Once the support finally broke, the index crashed.
Now take a look at the U.S. S&P 500 stock market (SPX):
SPX is soaring to new highs, not just climbing a wall of worry but leaping over it. So the engine of global growth–China–is exhibiting signs of serious disorder, and the world’s consumerist paradise–the U.S.– is on a euphoric high (Ibogaine in the water supply?)
This divergence is worth pondering. How can the two economies that have powered a 28-year Bull Market in just about everything (setting aside that spot of bother in 2008-09) be responding so differently to the global economy and global financial system’s woes?
There’s a rule of thumb that’s also worth pondering. While the stock market attracts all the media attention–every news cast reports the daily closing the the Dow Jones Industrial Average, the SPX and the Nasdaq stock index–the bond market is larger and more consequential. And larger still is the currency market–foreign exchange (FX).
As the chart below illustrates, a great many currencies around the world are in complete meltdown. This is not normal. Nations that over-borrow, over-spend and print too much of their currency to generate an illusion of solvency eventually experience a currency crisis as investors and traders lose faith in the currency as a store of value, i.e. the faith that it will have the same (or more) purchasing power in a month that it has today.

…click on the above link to read the rest of the article…

Russell Napier: “Turkey Will Be The Largest EM Default Of All Time”

Regular readers of the Fortnightly will know that The Solid Ground has long forecast a major debt default in Turkey. More specifically, the forecast remains that the country will impose capital controls enforcing a near total loss of US$500bn of credit assets held by the global financial system. That is a large financial hole in a still highly leveraged system. That scale of loss will surpass the scale of loss suffered by the creditors of Bear Stearns and while Lehman’s did have liabilities of US$619bn, it has paid more than US$100bn to its unsecured creditors alone since its bankruptcy.

It is the nature of EM lending that there is little in the way of liquid assets to realize; they are predominantly denominated in a currency different from the liability, and also title has to be pursued through the local legal system. Turkey will almost certainly be the largest EM default of all time, should it resort to capital controls as your analyst expects, but it could also be the largest bankruptcy of all time given the difficulty of its creditors in recovering any assets. So the events of last Friday represent only the end of the beginning for Turkey. The true nature of the scale of its default and the global impacts of that default are very much still to come.

Strong form capital controls produce a de facto debt moratorium, and very rapidly investors realize just how little their credit assets are worth. A de jure debt moratorium at the outbreak of The Great War in 1914 bankrupted almost the entire European banking system – it was saved by mass government intervention.

…click on the above link to read the rest of the article…

‘Perfect storm’: Global financial system showing danger signs, says senior OECD economist

‘Perfect storm’: Global financial system showing danger signs, says senior OECD economist

Nine years of emergency money has had a string of perverse effects and lured emerging markets into debt dependency, without addressing the structural causes of the global disorder.

William White says the lessons from the GFC have been forgotten.

William White says the lessons from the GFC have been forgotten.

Photo: AP

“All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten,” said William White, the Swiss-based head of the OECD’s review board and ex-chief economist for the Bank for International Settlements.

The Trump Administration's tax and spending blitz has pushed the US budget deficit toward $US1 trillion.

The Trump Administration’s tax and spending blitz has pushed the US budget deficit toward $US1 trillion.

Professor White said disturbing evidence of credit degradation is emerging almost daily. The latest is the disclosure that distressed UK construction group Carillion quietly raised £112 million ($195 million) through German Schuldschein bonds. South African retailer Steinhoff also tapped this obscure market, borrowing €730 million ($1.11 billion).

Schuldschein loans were once a feature of rock-solid lending to family Mittelstand companies in Germany. The transformation of this corner of the market into a form of high-risk shadow banking shows how the lending system has been distorted by quantitative easing (QE) and negative interest rates. Professor White said there was an intoxicating optimism at the top of every unstable boom when people convince themselves that risk is fading, but that is when the worst mistakes are made. Stress indicators were equally depressed in 2007 just before the storm broke.

…click on the above link to read the rest of the article…

Panama and the Criminalization of the Global Finance System

Panama and the Criminalization of the Global Finance System

Sharmini Peries:  Within a week the 11 million documents called the Panama papers, published by the International Consortium of Investigative Journalists, has become a household name. The documents are connected to the Panama law firm Mossack Fonsesca that helped establish offshore accounts for some of the wealthiest and most powerful leaders to launder money and evade taxes.

On Tuesday the police in Panama raided the Mossack Fonseca law firm to search for more documents linked to illicit activities. But what are they expecting to find, since we have already known for some time now that offshore accounts are being used to evade taxes by the banking sector, essentially white-collar crooks, at institutions such as Credit Suisse and others? But who is really behind the creation of these mechanisms and loopholes for tax evasion?

Economist Michael Hudson says Panama was created as a tax haven by certain sectors of our economy for this purpose. Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, and he’s a former balance of payments economist for Chase Manhattan bank. He is the author of many books, and the latest among them is Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

Michael, let’s begin with a short history of the creation of Panama and how it was bought from Colombia by the United States, and its relevance today vis-a-vis the Panama papers.

HUDSON: Well, Panama was basically carved off from Colombia in order to have a canal. It was created very much like Liberia. It’s not really a country in the sense that a country has its own currency and its own tax system. Panama uses U.S. dollars. So does Liberia.

…click on the above link to read the rest of the article…

The IMF Joins the New Cold War

The IMF Joins the New Cold War

“The IMF’s Executive Board met today and agreed to change the current policy on non-toleration of arrears to official creditors. We will provide details on the scope and rationale for this policy change in the next day or so.”

Since 1947 when it really started operations, the World Bank has acted as a branch of the U.S. Defense Department, from its first major chairman John J. McCloy through Robert McNamara to Robert Zoellick and neocon Paul Wolfowitz. From the outset, it has promoted U.S. exports – especially farm exports – by steering Third World countries to produce plantation crops rather than feeding their own populations. (They are to import U.S. grain.) But it has felt obliged to wrap its U.S. export promotion and support for the dollar area in an ostensibly internationalist rhetoric, as if what’s good for the United States is good for the world.

The IMF has now been drawn into the U.S. Cold War orbit. On Tuesday it made a radical decision to dismantle the condition that had integrated the global financial system for the past half century. In the past, it has been able to take thelead in organizing bailout packages for governments by getting other creditor nations – headed by the United States, Germany and Japan – to participate. The creditor leverage that the IMF has used is that if a nation is in financialarrears to any government, it cannot qualify for an IMF loan – and hence, for packages involving other governments.

This has been the system by which the dollarized global financial system has worked for half a century. The beneficiaries have been creditors in US dollars.

But on Tuesday, the IMF joined the New Cold War. It has been lending money to Ukraine despite the Fund’s rules blocking it from lending to countries with no visible chance of paying (the “No More Argentinas” rule from 2001).

…click on the above link to read the rest of the article…

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